Contractor U: Learning to be a bottom-line thinker

Contractors who are overly focused on increasing their sales without regard to their costs are like hockey coaches who put five forwards on the ice at all times. Their team might score 10 goals on the night and lose 12-10. In the next issue of Canadian Contractor, just about to roll off the press, I have a special Contractor University column about the changes in thinking you will need to make if you are tired of telling yourself (and everyone else who will listen to you): “I’m not making enough money!”

Here’s a brief excerpt from that longer story.  We’ll post the whole thing for you very shortly.

Increasing your prices by 10 per cent

If you current have a 20 per cent gross profit and you increase your price by 10 per cent, you will make 50 per cent more gross profit. That’s right, a 50 per cent increase in your gross profit from a 10 per cent increase in price. By the way, remember that gross profit is revenue less job costs, before subtracting overhead expenses.

How if you feel that you can’t charge any more, there are two things to keep in mind. If you increase your price, you might not win as much work. But since the work you will win will be at a much higher profit margin, you won’t need as much work to make the same profit. Less work for the same money is a good thing, in any business.

We at Renovantage have been encouraging our clients to raise their prices by 10 per cent for over ten years and not one of our members has lost even close to half of their work by doing this. Most of them have improved their sales processes at the same time and ended up with increased sales.